The Benefits of Buying a 'Boring' Businesses Instead of Seeking the Next Big Thing
Every day the headlines are filled with stories about the gold rush to find the hottest new startup. Ambitious young companies vying to be the next Uber or Facebook fill the headlines while investors fight to become part of those deals. The stakes have never been higher. Then again, neither have the expectations and valuations.
After selling my last company I have been on the hunt for the next big thing. It's not easy searching, letting alone finding a startup/idea that you can start, let alone grow to become something highly profitable.
It seems like most investors go to the same watering hole and pay premium prices for a chance to ride the unicorns. In my search I met Brent Beshore, founder and CEO of adventur.es. Brent initially invested in those hot startups before he noticed a lesser known, but equally deep, pond in which to fish. With everyone focused on the new and sexy startups, the opportunity to buy into low-key, yet profitable, main street companies and help them grow was wide open.
Now adventur.es invests in what Beshore calls “boring businesses.” These are stable and profitable, but can benefit from help in the form of best-in-class marketing strategies, technology and business systems. And, the approach works. His company grew to $6.8 million in 2011, landing a spot at No. 28 on the Inc. 500. It has since eclipsed $70 million per year in revenue -- all without bringing on outside capital.
Part of its success is due to focus; adventur.es looks for family-owned companies that meet an established set of investment criteria. The rest is the result of Beshore’s unique approach and his company’s core principles, which include the following:
1. Only select win-win deals.
Traditional private equity buyers focus on cost-cutting as a primary way to increase earnings and position the company for another quick sale. However, this approach inevitably leaves the new owners at odds with employees and founders. This aggressive approach creates a win-lose scenario that ultimately becomes unsustainable.
Instead, adventur.es goes into each investment with no intention to sell, which necessitates a win-win outcome and a longer view of the horizon. Beshore explains, “We work with the sellers to understand their local communities, reputations, and employee expectations. From there, we co-design plans that grow the business long term and create better lives for everyone, including the employees.”
This focus on sustainability and mutual benefits leaves everyone with a good feeling. Founders and employees understand that the new company is there to help grow the business in a way that is profitable for everyone involved. Their attitude improves and they even become willing to help enact the strategies laid out by the new company.
2. Identify any deal breakers upfront.
Some people say it never gets better than the first date. If someone’s personality and habits are less than desirable right away, think of how they’ll be after the honeymoon phase is over. With that in mind, you might have a list of deal breakers or red flags that signal early on a relationship probably won’t end well.
Adventur.es has a deal-breaker list of its own, which is a set of non-negotiable standards that it holds itself and its inquiries to from the beginning.
Most notably is its strict “No A-Hole Rule,” which is about as self-explanatory as it gets. There’s no tolerance for dishonest, egocentric, or manipulative behavior -- from adventur.es’ team or the teams of companies in its portfolio. If either side acts like jerks on the first date, the relationship will probably suffer so it’s not worth continuing.
However, those dates that offer transparent, honest, and friendly behavior have the greatest potential for success. These are often the companies that fly under the radar because the founders and their team are diligently working with their nose to the grindstones. They focus on hard work and it pays off for companies like adventur.es to invest with these dates.
3. Play the long game.
Short-view horizons require short-term thinking, which results in short-term decisions. The PE playbook says you should incentivize leadership to produce as much profit as possible and as quickly as possible. The easiest way to do that is by cutting corners and damaging relationships, neither of which may manifest negatively for quite a while. Adventur.es makes every investment with the intent to own the business in perpetuity.
“We tell our portfolio company CEOs to make decisions that will benefit the company long-term. We love asking, ‘What can we invest in today that will help us in 10 years?’” Beshore says.
4. Focus on quality, not quantity.
Last year, adventur.es reviewed more than 2,000 opportunities and completed three deals. That sounds like a lot of wasted energy, but it’s necessary and all part of the strategy.
“We are hunting for an extremely rare set of variables where philosophies, business circumstances and timing all line up perfectly,” Beshore says. “Since we never plan to exit, it makes us extremely reluctant to enter. We’re certainly looking for outliers.”
The net result is an organization that’s built to say “no” but is well positioned to maximize each opportunity to say “yes.”
Boring businesses doesn’t mean boring results.
In a world that’s so focused on finding the next unicorn, it’s important to take a step back and look at those doing it differently -- and doing it well. “We’re far from perfect and very much a work in progress,” Beshore says, “but so far, helping boring businesses grow is an opportunity to work with great people and have a blast doing it.”
This company and many others like it prove that the term, “boring,” doesn’t have to be viewed as negative in any way. Instead, the company again illustrates the value of looking where no one else is in order to create a real advantage in terms of opportunity and profitability.